The government last night issued an emergency pledge to Northern Rock savers that their money is safe, after a third day of queues outside branches threatened to spread across the banking system.

Northern Rock's shares shed a third of their value yesterday and the sense of crisis heightened as shares in rival mortgage lenders dropped sharply - Alliance & Leicester by a third and Bradford & Bingley by 15%. The falls raised fears that the contagion from Northern Rock was starting to spread through the financial system.

Amid criticism that the government reacted far too slowly to the first run on a major bank in over a century, the chancellor Alistair Darling announced a government guarantee of all deposits in Northern Rock - thus overturning the system for dealing with bank collapses which Labour introduced six years ago.

He intervened just after news of the Alliance & Leicester's mauling started to emerge. Mr Darling said the guarantee would apply to other banks in trouble. But he insisted no other had so far followed the Northern Rock and applied to the Bank of England for emergency funding.

"I want to put the matter beyond doubt. I can announce today that following discussions with the governor [of the Bank of England] and the chairman of the FSA [Financial Services Authority], should it be necessary, we, with the Bank of England, would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability in the financial markets," the chancellor said, as Labour faced potentially its worst crisis since coming to power a decade ago.

Northern Rock chief Adam Applegarth added that the statement made it clear all savings were "safe and secure".

Mr Darling had previously spent the day trying to reassure Northern Rock savers.

But the queues lengthened as customers discovered that under current rules only just over £30,000 of savings would be protected should Northern Rock collapse. There were angry scenes when savers were turned away at 6pm as branches closed. Malcolm Purcell, queuing outside the Moorgate branch in London for seven hours, said: "It's absolutely dreadful."

Withdrawals are estimated at £3bn in three days, equivalent to an eighth of the bank's deposits. Yesterday its shares dropped 155p, or more than 35%, to 283p, from a £12.58 high in February this year.

Alliance & Leicester issued a statement saying it had not sought Bank of England help, insisting its business was sound and that it had no idea why its share price had dropped so fast.

The City fears a lack of confidence in other banks using Northern Rock's model of relying on short-term funds from money markets to cover long-term mortgage loans. Global fears over the British banking system and economy grew, and sterling fell back below $2.

The government, Bank of England and FSA were trying to find a buyer for Northern Rock last night. Sources said there was intense activity but there were no indications that a buyer had yet come forward in spite of the big falls in its share price. The Northern Rock name is thought unlikely to survive any buyout.

At a conference at accountants KPMG, Conservative leader David Cameron said: "This government has presided over a huge expansion of public and private debt without showing awareness of the risks involved.

"Under Labour our economic growth has been built on a mountain of debt. And as any family with debts knows, higher debt makes us more vulnerable to the unexpected." He pointed out that former Federal Reserve chief Alan Greenspan himself, appointed by Gordon Brown as his economic adviser, made that point yesterday when he said that "Britain is more exposed" than the US.

Speaking at the Lib Dems' annual conference, the party's Treasury spokesman Vince Cable said he had warned Mr Brown of a looming debt crisis four years ago. The prime minister and Mr Darling last night held talks with US Treasury Secretary Henry Paulson to discuss the global credit crunch, with the possibility that the US Federal Reserve will today cut its interest rates to get banks lending to each other again. The reluctance to lend has been caused by the collapse in the US sub-prime mortgage market, where thousands of people with little ability to repay their mortgages have defaulted as interest rates rose sharply.